4 ms·

It also doesn't mean a decrease in unemployment, which is what this report claims. I'm also still unclear on _how_ a minimum wage would have no effect on unempl

It also doesn't mean a decrease in unemployment, which is what this report claims. I'm also still unclear on _how_ a minimum wage would have no effect on unemployment, which is what the law of supply and demand predicts.

pm90 9y ago
Law of supply and demand... lets just say its never very straightforward.
kingbirdy 9y ago
Because minimum-wage type labor demand is inelastic relative to the actual wage, e.g. regardless of the minimum wage, McDonalds needs at least a few employees on staff at all times - there's a point where they can't cut labor any more, but their revenue is still high enough that the increase in wage payments wont put them out of business, just lower profits.
- lawrencewu 9y ago
  I agree with that. However, nothing is perfectly inelastic, and so increasing the minimum wage would still increase unemployment, even if only by a little amount.
  - TheCoelacanth 9y ago
    Then let's assume it's just highly inelastic. If raising the minimum wage causes a small decrease in employment, but the raise is high enough that there is still an increase in the total wages for all workers in the economy, that puts more money in the hands of consumers, which potentially results in companies needing to hire more workers to meet the demand resulting in a overall increase in employment.
  - crdoconnor 9y ago
    It also creates a countervailing force that increases employment: people on minimum wage spend their money which creates demand, which creates minimum wage jobs.
frgtpsswrdlame 9y ago
I see this a lot here and if you believe there is basically any market where the simple supply and demand model is relevant you're probably mistaken. The other thing is that this graph: http://i.investopedia.com/inv/tutorials/site/economics/economics5.gif http://i.investopedia.com/inv/tutorials/site/economics/econo... is not a free market model! Not at all! It is a "perfectly competitive" model and has several very specific assumptions: 1) All firms sell an identical product 2) All firms are price takers - they cannot control the market price of their product 3) All firms have a relatively small market share 4) Buyers have complete information about the product being sold and the prices charged by each firm 5) The industry is characterized by freedom of entry and exit. I'm not sure the labor market actually meets any single one of those criteria. Furthermore, if you are interested in how minimum wage actually effects employment I would check out the following report(here's a good quote). The employment effect of the minimum wage is one of the most studied topics in all of economics. This report examines the most recent wave of this research – roughly since 2000 – to determine the best current estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage. http://cepr.net/documents/publications/min-wage-2013-02.pdf http://cepr.net/documents/publications/min-wage-2013-02.pdf
- mason240 9y ago
  The argument that because no market is the theoretical, textbook prefect market means we can ignore market forces and supply and demand is dubious.
  - frgtpsswrdlame 9y ago
    That's not what I'm saying. Our understanding of supply and demand is shaped by the model we place them in. In this case if your understanding of supply and demand is that regardless of any of the 5 factors I listed above, supply and demand will converge to a pretty equilibrium like two lines on a graph with only two lines then you're wrong. And if you look at the empirical evidence and it strongly contradicts what your model says should happen then your model needs an update. In this case the perfectly competitive model is absolutely the wrong way to understand the labor market. The paper I linked mentions a dynamic monopsony model and also 11 different channels through which adjustment is possible. Basically the market is lots and lots of different forces (not just supply and demand) all originating from (not always rational) people, in this case we need a model which more accurately models this. If you'd like to read more about how the proliferation of the basic supply and demand model has really hurt the layman's understanding of the economy there's a great book that came out recently called "Economism." Here's a short article which can give you a bird's eye view: https://www.theatlantic.com/business/archive/2017/01/economism-and-the-minimum-wage/513155/ https://www.theatlantic.com/business/archive/2017/01/economi...
crdoconnor 9y ago
"I'm also still unclear on _how_ a minimum wage would have no effect on unemployment," There's three things that can give: 1) Unemployment (workers eat shit) 2) Inflation (customers eat shit) 3) Profits (owners eat shit) I'll give you a clue which group takes the brunt of minimum wage increases. Take a wild guess who paid for this expensive times sq advert: https://pbs.twimg.com/media/CNsVNeGWUAE3T7p.png https://pbs.twimg.com/media/CNsVNeGWUAE3T7p.png The low pay commission study actually found no effect on employment and no effect on prices except for a very slight non-commensurate rise in one industry (canteen services i think).

pm90 9y ago

Law of supply and demand... lets just say its never very straightforward.

kingbirdy 9y ago

Because minimum-wage type labor demand is inelastic relative to the actual wage, e.g. regardless of the minimum wage, McDonalds needs at least a few employees on staff at all times - there's a point where they can't cut labor any more, but their revenue is still high enough that the increase in wage payments wont put them out of business, just lower profits.

lawrencewu 9y ago
I agree with that. However, nothing is perfectly inelastic, and so increasing the minimum wage would still increase unemployment, even if only by a little amount.
- TheCoelacanth 9y ago
  Then let's assume it's just highly inelastic. If raising the minimum wage causes a small decrease in employment, but the raise is high enough that there is still an increase in the total wages for all workers in the economy, that puts more money in the hands of consumers, which potentially results in companies needing to hire more workers to meet the demand resulting in a overall increase in employment.
- crdoconnor 9y ago
  It also creates a countervailing force that increases employment: people on minimum wage spend their money which creates demand, which creates minimum wage jobs.

frgtpsswrdlame 9y ago

I see this a lot here and if you believe there is basically any market where the simple supply and demand model is relevant you're probably mistaken. The other thing is that this graph: http://i.investopedia.com/inv/tutorials/site/economics/economics5.gif http://i.investopedia.com/inv/tutorials/site/economics/econo... is not a free market model! Not at all! It is a "perfectly competitive" model and has several very specific assumptions: 1) All firms sell an identical product 2) All firms are price takers - they cannot control the market price of their product 3) All firms have a relatively small market share 4) Buyers have complete information about the product being sold and the prices charged by each firm 5) The industry is characterized by freedom of entry and exit. I'm not sure the labor market actually meets any single one of those criteria. Furthermore, if you are interested in how minimum wage actually effects employment I would check out the following report(here's a good quote). The employment effect of the minimum wage is one of the most studied topics in all of economics. This report examines the most recent wave of this research – roughly since 2000 – to determine the best current estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage. http://cepr.net/documents/publications/min-wage-2013-02.pdf http://cepr.net/documents/publications/min-wage-2013-02.pdf

mason240 9y ago
The argument that because no market is the theoretical, textbook prefect market means we can ignore market forces and supply and demand is dubious.
- frgtpsswrdlame 9y ago
  That's not what I'm saying. Our understanding of supply and demand is shaped by the model we place them in. In this case if your understanding of supply and demand is that regardless of any of the 5 factors I listed above, supply and demand will converge to a pretty equilibrium like two lines on a graph with only two lines then you're wrong. And if you look at the empirical evidence and it strongly contradicts what your model says should happen then your model needs an update. In this case the perfectly competitive model is absolutely the wrong way to understand the labor market. The paper I linked mentions a dynamic monopsony model and also 11 different channels through which adjustment is possible. Basically the market is lots and lots of different forces (not just supply and demand) all originating from (not always rational) people, in this case we need a model which more accurately models this. If you'd like to read more about how the proliferation of the basic supply and demand model has really hurt the layman's understanding of the economy there's a great book that came out recently called "Economism." Here's a short article which can give you a bird's eye view: https://www.theatlantic.com/business/archive/2017/01/economism-and-the-minimum-wage/513155/ https://www.theatlantic.com/business/archive/2017/01/economi...

crdoconnor 9y ago

"I'm also still unclear on _how_ a minimum wage would have no effect on unemployment," There's three things that can give: 1) Unemployment (workers eat shit) 2) Inflation (customers eat shit) 3) Profits (owners eat shit) I'll give you a clue which group takes the brunt of minimum wage increases. Take a wild guess who paid for this expensive times sq advert: https://pbs.twimg.com/media/CNsVNeGWUAE3T7p.png https://pbs.twimg.com/media/CNsVNeGWUAE3T7p.png The low pay commission study actually found no effect on employment and no effect on prices except for a very slight non-commensurate rise in one industry (canteen services i think).